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    Aman Jot Mam Bajaj Auto Limited

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    Shekiba
    This case study analyzes the working capital management of Bajaj Auto Ltd from 2010-2014. Bajaj Auto is a leading manufacturer of motorcycles and three-wheelers in India and globally. The analysis shows that Bajaj Auto maintained negative working capital throughout the period, with current liabilities exceeding current assets. This was due to large provisions for expenses like gratuity, taxes, and dividends. Bajaj Auto manages working capital efficiently with inventory turnover of 31 days, debtors turnover of 25 days, and payment period to suppliers of 45 days, allowing them to sell goods before paying for raw materials. Key ratios like current and quick ratios

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    Aman Jot Mam Bajaj Auto Limited

    Uploaded by

    Shekiba
    112 views5 pages
    This case study analyzes the working capital management of Bajaj Auto Ltd from 2010-2014. Bajaj Auto is a leading manufacturer of motorcycles and three-wheelers in India and globally. The analysis shows that Bajaj Auto maintained negative working capital throughout the period, with current liabilities exceeding current assets. This was due to large provisions for expenses like gratuity, taxes, and dividends. Bajaj Auto manages working capital efficiently with inventory turnover of 31 days, debtors turnover of 25 days, and payment period to suppliers of 45 days, allowing them to sell goods before paying for raw materials. Key ratios like current and quick ratios

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    Bajaj Auto financial report.

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    This case study analyzes the working capital management of Bajaj Auto Ltd from 2010-2014. Bajaj Auto is a leading manufacturer of motorcycles and three-wheelers in India and globally. The analysis shows that Bajaj Auto maintained negative working capital throughout the period, with current liabilities exceeding current assets. This was due to large provisions for expenses like gratuity, taxes, and dividends. Bajaj Auto manages working capital efficiently with inventory turnover of 31 days, debtors turnover of 25 days, and payment period to suppliers of 45 days, allowing them to sell goods before paying for raw materials. Key ratios like current and quick ratios

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    112 views5 pages

    Aman Jot Mam Bajaj Auto Limited

    Uploaded by

    Shekiba
    This case study analyzes the working capital management of Bajaj Auto Ltd from 2010-2014. Bajaj Auto is a leading manufacturer of motorcycles and three-wheelers in India and globally. The analysis shows that Bajaj Auto maintained negative working capital throughout the period, with current liabilities exceeding current assets. This was due to large provisions for expenses like gratuity, taxes, and dividends. Bajaj Auto manages working capital efficiently with inventory turnover of 31 days, debtors turnover of 25 days, and payment period to suppliers of 45 days, allowing them to sell goods before paying for raw materials. Key ratios like current and quick ratios

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    Faculty Name: Ms.

    Amanjot Kaur Sodhi

    Designation: Assistant Professor

    Subject : Financial Management

    Title of the Case: Working Capital Management of Bajaj Auto Ltd.

    Topic Covered: Working Capital Management

    A Case Study on Working Capital Management of Bajaj Auto Ltd.

    Background

    Bajaj Auto Ltd is a flagship of Bajaj Group which is amongst the top 10 business houses
    in India. Bajaj Auto is the world's third-largest manufacturer of motorcycles and the
    second-largest in India It is the world’s largest three-wheeler manufacturer.

    Bajaj Auto came into existence on 29 November 1945 as M/s Bachraj Trading
    Corporation Private Limited It started off by selling imported two- and three-wheelers in
    India. In 1959, it obtained a license to manufacture two-wheelers and three-wheelers
    and it became a public limited company in 1960. In 1970, it rolled out its 100,000th
    vehicle. In 1977, it sold 100,000 vehicles in a financial year. In 1985, it started producing
    at Waluj near Aurangabad.

    It was founded by Jamnalal Bajaj in Rajasthan in the 1930s. It is based in


    Pune,Mumbai, with plants in Chakan (Pune), Waluj (near Aurangabad) and
    Pantnagar in Uttarakhand The oldest plant at Akurdi (Pune) now houses the R &
    D centre 'Ahead'.

    On 31 March 2013, its market capitalization was INR 520 billion (US$9.57 billion),
    making it India's 23rd largest publicly traded company by market value
    With the launch of motorcycles in 1986, the company has changed its image from a
    scooter manufacturer to a two-wheeler manufacturer.

    According to the authors of Globality: Competing with Everyone from Everywhere for
    Everything, Bajaj has operations in 50 countries by creating a line of bikes targeted to
    the preferences of entry-level buyers.

    Bajaj Auto Ltd., incorporated in the year 2007, is a Large Cap company (having a
    market cap of Rs 58,491.2 Cr.) operating in Auto sector.
    Bajaj Auto Ltd. key Products/Revenue Segments include Automobile - Vehicles which
    contributed Rs 18800.53 Cr to Sales Value (88.85% of Total Sales), Auto Spare Parts
    (Trading) which contributed Rs 1659.97 Cr to Sales Value (7.84% of Total Sales),
    Export Incentives which contributed Rs 335.94 Cr to Sales Value (1.58% of Total
    Sales), Auto Spare Parts which contributed Rs 241.97 Cr to Sales Value (1.14% of
    Total Sales), Scrap which contributed Rs 54.82 Cr to Sales Value (0.25% of Total
    Sales), Royalty Income which contributed Rs 40.59 Cr to Sales Value (0.19% of Total
    Sales), Vehicles - Trading Items which contributed Rs 24.57 Cr to Sales Value (0.11%
    of Total Sales), Other Operating Revenue which contributed Rs 0.52 Cr to Sales Value
    (0.00% of Total Sales), for the year ending 31-Mar-2014.
    For the quarter ended 31-Dec-2014, the company has reported a Standalone sales of
    Rs. 5520.01 Cr., down -5.27% from last quarter Sales of Rs. 5826.85 Cr. and up 9.86%
    from last year same quarter Sales of Rs. 5024.76 Cr. Company has reported net profit
    after tax of Rs. 861.24 Cr. in latest quarter.
    Bajaj Auto with its strong brand image and other competency features maintained
    dominant position in India .Year on year the company increased production size and
    attained economies of scale.

    Working Capital
    Working Capital is that which is required to operate routine business activities. It reflects
    the liquidity position of the company. Working capital is excess of current assets over
    current liabilities. Current assets include cash ,bank balance, marketable securities,
    inventories and receivables whereas current liabilities include creditors, bills payable
    and provisions. Working capital has great influence on profitability and solvency .As we
    increase the liquidity the profitability will be effected and if we decrease it the solvency
    will be effected.
    Working Capital of Bajaj Auto Ltd. Is given below:

    Working Capital of Bajaj Auto Ltd


    Current Assets Mar’2014 Mar’2013 Mar’2012 Mar’2011 Mar’2010
    Inventories 639.72 636.28 678.53 547.28 446.21
    Sundry Debtors 796.21 767.58 423.20 362.76 272.84
    Cash and Bank
    495.48 558.86 446.49 155.45 100.20
    Balance
    Total Current Assets 1,931.41 1,962.72 1,548.22 1,065.49 819.25
    Loans and Advances 2,116.46 1,987.44 1,744.82 3,891.66 2,291.29
    Fixed Deposits 0.00 0.00 1,208.36 401.04 1.21
    Total CA, Loans & 4,047.87 3,950.16
    4,501.40 5,358.19 3,111.75
    Advances
    Current Liabilities 3,108.15 2,762.93 2,925.53 2,624.35 2,218.06
    Provisions 1,973.69 1,742.47 2,174.89 3,925.72 2,248.72
    Total CL &
    5,081.84 4,505.40 5,100.42 6,550.07 4,466.78
    Provisions
    Net Current Assets -1,033.97 -555.24 -599.02 -1,191.88 -1,355.03

    On observing the working capital of Bajaj Auto Ltd. From Mar’2010 to 2014 it is evident that
    company had negative working capital throughout the period which means their current
    liabilities are more than their current assets .A large amount has been kept as provisions
    such as provision for gratuity ,welfare schemes, warranties, taxes and proposed dividends etc.
    Current liabilities include dues to micro and small enterprises, current maturities of long term
    borrowing, annuity payable to employees opted for VRS, advance received from customers,
    unclaimed dividends, employees benefits and taxes.
    Credit period for 45 days is extended by suppliers or vendors mand payments are released on
    timely basis so no liability towards interest payments.Company makes long term term and
    short term investments in bonds,debentures,units of mutual funds,commercial papers and
    certificate of deposits.
    Inventories include raw material ,work in progress and finished goods.

    Liquidity and Activity Ratios


    Current Ratio 0.80 0.88 0.88 0.80 0.69
    Quick Ratio 0.67 0.74 0.72 0.71 0.55
    Inventory Turnover
    31.50 31.43 30.97 32.80 28.87
    Ratio
    Debtors Turnover
    25.31 33.59 49.66 51.77 37.4
    Ratio
    Receivable days 13.49 10.28 6.98 6.31 9.01
    Inventory Days 11.01 11.36 10.93 10.46 11.82
    Payable days 46.91 44.28 43.19 46.30 46.37

    Current ratio show the ratio of current assets to current liabilities.

    which is approximately 0.80 throughout the period whereas quick ratio excludes the
    inventories from current assets.
    Inventory turnover ratio shows that how many times inventory gets converted into cash.
    It is approximately 31 days and debtors turnover ratio is 25 days which is decreasing
    continuously from the previous years which means they are recovering their money
    early from the debtors. whereas the payable days are approx.45 .Company first sell the
    goods and latter make payment of raw material which means they have greater
    payment period. They have improved their inventory management. Company place bulk
    order with its supplier on condition of extended credit As a result they enjoy a significant
    gap in number of days between cash receipt from debtors and creditors payment.

    Questions
    Q1 Evaluate the working capital management at Bajaj Auto Ltd. How do they manage
    their working capital?

    Q2 How long they would be able to survive with negative working capital and what for
    the provisions are made?
    References:
    1) Pandey, I.M.Financial Management, Vikas Publication p.588-591
    2) Khan,M.Y. and Jain,P.K.Financial Management,Tata McGraw Hills p.13.6-13.8
    3) Singh,Shveta,P.K.Jain and surendre S.Yadav,”Working Capital
    Management:Empirical Evidence From Indian Corporates”.The Management
    Accountant,Vol48,No.6 pp.691-706
    4) Annual Reports of the company
    5) www.moneycontrol.com
    6) www.bajajauto.com

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